Oil benchmark Brent price structure signals tighter market - Reuters
Oil benchmark Brent price structure signals tighter market | Reuters
Oil benchmark Brent price structure signals tighter market
LONDON, July 12 (Reuters) - The futures contract structure of the global benchmark Brent indicates the market is tightening and that the Organization of the Petroleum Exporting Countries could be succeeding in its mission to support the market.
Until last week, oil prices had been rangebound for months as the market focused on weak recovery in China following the lifting of pandemic restrictions, rising U.S. inventory levels and broader concerns that inflation-induced recession will dent global oil consumption.
But the focus has moved to supply cuts set for August from top oil exporters and expectations of burgeoning demand in the second half of this year.
On Wednesday, slower U.S. inflation data added to the bullishness because it suggested the interest rate hike cycle in the world's biggest economy is set to cool. Higher rates can slow economic growth and reduce oil demand.
The premium of a front month Brent contract to a six month February 2024 contract rose to $2.64 a barrel on Wednesday. At the end of the June, the front month contract was at a discount to the six month contract.
This is one of many indicators that suggest the oil market is tightening, UBS analyst Giovanni Staunovo said.
"With Saudi Arabia reducing its production voluntarily and lower OPEC exports, refineries have to look for alternative barrels," he said.
Traders previously have focused on over-supply and the gloomy macroeconomic environment.
"No doubt, the sentiment is turning," said PVM analyst Tamas Varga. "It looks increasingly likely that second half stock draws will be the major supporting factor in coming months."
Top oil exporters Saudi Arabia and Russia last week announced output cuts that bring the total reduction by OPEC and its allies to around five million barrels per day (bpd), equating to 5% of global oil demand.
Physical crude markets have also strengthened in line with the more bullish mood.
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